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Japan’s Economic Development

In the following paper I will be examining the process of economic development in Japan. I begin with their history in the Meiji period and how that effected their great success in the postwar development. Then I will go through the different economic stages of economic development in postwar Japan. I will examine the high periods and low period in Japan economics, and the factors behind these shifts in development. Last I will give a conclusion and where I believe Japan economy will be in the future. To understand Japan economic boom after the war you must also look at there history.

Without the creation of the industrial economy during the Meiji Japan this economic growth after postwar could have not happened. To look even closer lets examine the period before called the Tokugawa period, from 1630’s until the 1860’s. Smith explains that \”during this period Japanese economy experienced unparalleled growth and structural change\” (Smith, Page 4). The system was set up on rules and obligations on all sections of society. These systems of control helped rapid urbanization. Education is also a factor in the economic development in Tokugawa period.

Tokugawa Japan abapted Confucianism belief system from there neighbors China. This became important because \”one of the distinctive traits of Confucianism was reverence for education and learning\”  (Smith, Page 5). This spread of education was dramatic. Not Only did the knowledge seep the upper class (such as the samurai and merchants) but in order to expand business it filtrates down to the peasants and artisans also. During this period up to forty percent of boys and ten percent of girls were educated by the 1850’s. These are great numbers compared to other societies.

The Tokugawa period in turn developed an economy familiar to bureaucratic direction and directed by the well-educated people stated Dennis Smith. In 1869 the Tokugawa shogunta was bought down and Meiji restoration began. Japan was under great change. Meiji Japan began to industrialize. This was due to the western countries that have already industrialized. It was through private investment and enterprise that Japan began this process. The backbone of industrialization was the zaibatsu. Zaibatsu were industrial and financial conglomerates.

They were given government support including benefits from government subsidies and sell-off of government factories. The first of these zaibatsu were Mitsui, Mitsubishi, Sumitomo, and Yasuda. Growth of industrialization began slowly. In the beginning they still depended largely on United States and Europe for most specialized and worldly machinery and manufactured goods. It was not till the 1915 that industrialization began to take off for Japan. Why did this happen? The explanation is that the World War I began. During World War I Japan was cut off from most European manufacturer goods.

This was the needed opportunity for Japanese manufacturers. Now they were able to broaden what they manufactured and move into the markets that they normally imported from Europe. The demand for these manufactured goods ended up resulting in a net domestic product growth by 61. 5 percent between 1910 to 1920. By the 1920’s the wartime boom was over and Japan’s economy went into a recession. Yet the 20’s were important to economic development. During this period economic development began to shift into a different role. Important changes in industry began to take place. One was a more efficient source of electric power.

This was called the hydroelectric plant. Hydroelectric plants took better advantage of Japanese geography then their pervious source of electricity. It also developed relatively cheap electrical power. With cheaper power now new industries began to develop (including aircraft and radio and electrical appliances). But the most important change I feel is \”laboratories that government, universities and private companies set up in the 1920’s they were the basis of Japan’s development expertise in computers and information technology. \” (Smith, Page9). Soon after the First World War, Japanese economy was that of a dual structure.

This still holds true of Japan today. What does a dual structure mean? It is when you have companies that are capitalized and have access to the best available foreign technology. Their workers are very well skilled and receive high wages. Yet, opposite to that, Japan also has a different side to their economy structure. This side of the economy is small and medium sized enterprises. Their duties are more then likely subcontracting for more advanced companies. They are not able to have the latest technology that the larger companies have because they do not have large amounts of capital.

The jobs they provide are low skilled jobs so workers receive low wages also. The majority of worker in Japan today works in small and medium enterprises. Patrick Smith describes this as a satellite manufacturing system. He says it was invented to maximize production. Smith displays a good picture of how the system runs. He says that beneath corporations are subcontractors and beneath them \”are front parlor factories – households where parts are assembled, stamped, or cut and packed off up the production ladder. \” (Smith, Patrick, Page 114) In 1929 to 1930 the world was in a depression.

This threat set off yet another change in the Japanese economy. As a result of the depression Japan became a more militarized state. The economy soon began to shape around miniaturization. As a result \”the growing demand for goods and services from the military stimulated a growth in manufacturing industry, both in the production and in technology. \” (Smith, Page 11). Yet over half of the manufacturing was in heavy industries. This would later have negative effects on Japan. New zaibatsu developed in this period (one of them being Nissan). However there were many flaws to this economy as I said earlier.

Most noticeable of them was the fact that it was based so largely on military expansionism. The national budget was spending an exceeding amount of capital in the expansion of the military. Japan soon became an allied force in World War Two. After the war Japan had been defeated and there were large cost. World War II had a devastating effect on Japan and its economy. At the end of the war 8,000,000 Japanese were either dead or wounded (Kosaka, 1972) (Smith, Page 31). Also the cost of the war and defeat was almost half of their national wealth.

Japan had a dramatic loss in coal production, their rice harvest was worst then it had been in years, there was a lack in raw materials, and an increasing inflation rate. But to top things despite all of Japan’s casualties of war their unemployment was still at a low and of great concern. This started the cycle of economic development in the occupation period of Japan history. The United States occupied Japan from 1945 to1952. During the occupation the United States initial \”instructions were to take no undue measures to revive the Japanese economy\” (Smith, Page 64).

Other policies of the occupation were the break up of the zaibatsu. They were accused of being the driving force behind militarism in the 1930’s to the 1940’s. Yet the zaibatsu were the center in economic development. In 1947 there was a change in course in the United States policies in the occupational period. This was largely due to changes in the decision-making structure of the US and I feel mainly to ease the mounting cost on the United States. Some of these changes in policy were fewer pressures for a decentralization of the zaibatsu.

And by the end of the occupation a new zaibatsu emerged called the keiretsu. No matter what policies were put into motion by the occupation it was not till the Korean War that Japanese economy started to take off. It was then that the dodge line was put into effect and began to help the economy. The Korean War began in June 1950 and ended July 1953. The reason for this boost in the economy was that \”Japanese became a vital source of supplies for the US forces fighting in Korea\” (Smith, Page 86). This ended up contributing \”$930 million to the Japanese economy between 1950 and 1955. (Smith, Page 86).

The war put Japan’s automobile industry in motion. This was due to there responsibilities in repairing US military vechiles. Japan export values also began to increase on the international market. All of this leading to an eventually import of international technology. The Korea War lead to a change in Japanese industries. Now policies focused on modernizing industries. Smith explains that this would \”reduce cost and make Japan internationally more competitive\” with other countries (Smith, Page 87). All of this began the beginning of industrial rationalization.

As industries began to rationalize new industries began to develop. For example \”the development of iron and steel was accompanied by  the manufacture of domestic appliances and early development of the Japanese automobile industry\” (Smith, Page 89). Japan also changed their management and production methods. They began to introduce such method into large industries during the 1950’s. This was largely based on the American idea of quality control experts. These methods lead to the high quality of Japanese manufactured goods. Many of the methods were later copied by other industrialized worlds.

What was the government involvement in the economic growth during this period of time? It has been argued that their involvement was either minimal or large. I do not know how much of an impact the government did have but I would argue that through government organization they did play some role in economic growth. An example would be the organization MITI (Ministry of International Trade and industry. Though MITI was formed before the war their policies did not impact the economy till post war. One thing they did was to establish something called overloans.

Basically overloans were hen banks would lend more money to certain firms then what they were actually worth. This was possible because the government would cover any risk involved to the bank. Now we move on to the next period of Japan economic development. This period was between 1960 and 1973. The author Dennis Smith describes the years between 1960 and 1973 as having \”aura of a golden age for Japan\” (Smith, Page 96). One popular explanation for the tremendous amount of economic growth in Japan was called the Japan Incorporated. This model of decision making still continues to be popular among Japan Politics.

It is based on the idea that conservative politicians, bureaucracy, and big business all three work together in close cooperation with one another. What holds this idea together is that the main role and goal of these groups is rapid economic growth. And it is the close relationship between the three that \”plans and co-ordinates grand strategy for Japan’s economic development and which greatly enhances the abilities of economic bureaucracies to shape Japan’s economic future\” (Smith, Page 109). Though not everyone agrees with the ideas of the Japan Incorporated and if it accurately describes japans politics today.

Kenji Hayao says that the model held truer in the 1960’s. Today Japan structure is more fragmented or sectionalized. Put into his own words  \”those who see the current system as fragmented believe that, though the cohesive, united view may have been accurate in the 1960’s \”Japan, Inc. \” since then has become \”unbundled\”\” (Hayao, Page 10). It may never be clear the extent to which these three powerful groups are connected with one another. During the period of 1953 and 1971 investments were high. This was a very important source of economic growth in Japan according to Smith.

Such investments made by private industries able Japan to compete with international markets. Through these investments they could have access to leading technological knowledge. These investments were made possible through overloans and conglomerates that provide capital to members of the group. Through these investments by 1967 Japan was no longer importing its technology, yet they were researching and developing their own. Though this did have negative impacts on Japan’s economic growth. Earlier growth was easy because they could import western technology without the costs.

Now Japan had to pay the cost of its own research development. The golden era did however come to a halt in 1973 as a result of the oil crisis. This Crisis \”hit Japan Harder than other industrialized nation because it coincides with internal economic problems and with the end of stability between the world’s major currencies. \” (Smith, Page 133). Inflation doubled in the country from 1973 to 1974. Japan economy there after began to change. Their economic growth rate slowed down dramatically. And there was also a smaller gap of technology between Japan and other industrial countries.

Last of changes, Japan’s labor intensive industries were less competitive. This was a result of newly industrialized countries (such as South Korea and Taiwan) that had much lower wages then Japan did. Government and business in 1973 began to look to technology as a way to maintain economic growth. There was a change from then on in Japan’s system of economic development. Before 1970 it was base on domestic market, but after 1973 exports became more and more important to Japan’s economy. An example of this is the automobile industry in Japan. After the oil crisis the world’s ideas about oil developed into an idea of oil conservation.

Smaller and more oil sufficient cars were becoming more in demand. These types of cars were what Japan specialized in. This and other factors that I do not discuss in this paper resulted that in \”1979 Japan automobile production overtook that of the US for the first time. \”  (Smith, Page 136). Although Japan’s high-speed economic growth was stopped they \”showed remarkable resilience and flexibility, so that by the time of the second oil shock in 1979 it was on a sound basis. \”  (Smith, Page 137). In the 1980’s to today Japan is maintaining a respectable constant economic growth.

Much of this growth was due to exports and purchases of assets over seas. In the mid 1980’s a new phenomenon began to develop. It was called the \”Bubble Economy\”. Due to the large amounts of money in the economy banks began to loan large sums of money to finance the purchase of land and shares. Companies and foreign investments were at very high levels. Property prices were doubled in a year and then doubled again. And customer spending was booming. Patrick Smith describes it as a time that brought \”Japanese into the worlds real-estate markets, resorts, and auction rooms. \” (Smith, Patrick, Page 29).

Yet this was all going to come to an end soon. In 1989 the economic bubble burst. As a result land prices began to fall, large loans were not being paid on, and the stock market dropped in value by almost half. By 1993 the economy was in serious recession. Japan though once again manages to recover. As explain by Dennis Smith \”Recovery from this unparalleled economic trough was painfully slow and only in the third quarter of 1994 was it clear that the economy was beginning to grow again\”  (Smith, Page 161). In conclusion Japan’s rise in economic growth  has been one of the most extreme development in postwar history.

Japan today has one of the largest economies in the world. When you look through their history of economic development you first see that much of their postwar success was contributed to a foundation formed hundreds of years before World War II. You also most realize that they have gone under many different economic changes from post war to present. Their road to success was not always a smooth one. They have been in many recessions. Though Japan has had such struggles they have always managed to overcome them. I feel that their strength in the international market will be here for many years to come.

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